Defense tech thrives in the EU with public and private support

“The era of the peace dividend is long gone. The security architecture we relied on can no longer be taken for granted. Europe is ready to step up. We must invest in defense, strengthen our capabilities, and take a proactive approach to security,” stated last week President of the European Commission Ursula von der Leyen, while presenting her plan to boost EU defense.

As the geopolitical scenario evolves rapidly, the EU has launched a series of initiatives to prepare itself for potential external threats. The war in Ukraine has exposed the bloc’s unpreparedness for a conflict. Since the election of Donald Trump, the United States has been reconsidering its support for Ukraine. Therefore, the EU decided to strengthen its military capabilities through ReArm Europe, which can mobilize up to €800 billion for European security. Technology is pivotal in this strategy. 

Defense tech investments are surging

Although the EU Commission's commitment came at the beginning of this year, defense expenditures are on an upward trend. According to the European Defence Agency, EU member states spent €326 billion last year–a 30% rise compared to 2021. Estimates suggest this expenditure will grow by over €100 billion by 2027. 

Considering the 23 EU countries that are also NATO members, defense expenditures were 1.99% of their combined gross domestic product (GDP). Since 2014, NATO allies have committed to spending 2% of their GDP on defense. Trump has often targeted European countries that don’t meet this quota. 

Part of the growth in defense expenditure is fueled by the surge in investments, which, according to the latest estimates, passed the €100 billion mark in 2024. Most of this money went into equipment procurement (88.2%) while the remaining part went on research and development. 

Defense tech VC funding is also hiking

Parallel to countries’ military spending growth, venture capital (VC) funding in this area has also been expanding. Since 2018,  $18 billion of VC investments have been raised in NATO countries, a recent report by Dealroom.co shows. Overall, VC funding in NATO countries has grown fourfold since 2019, reaching $ 5.9 billion last year. 

European defense tech investments have soared over the past few years. The same analysis shows that VC funding for defense tech has grown fivefold since 2020. In 2024, the amount raised reached €1 billion. This makes defense tech 1.8% of European VC funding—in 2022, it was 0.4%. 

© Dealroom.co

Since 2018, Germany has been the European country attracting the highest amount of funding ($1 billion), followed by the United Kingdom ($742 million) and France ($ 459 million). These three make up 87% of the total investments. The Netherlands attracted $53 million. 

What technologies is the money going to? 

In particular, as our columnist Marco Coolen highlighted, three technology domains are thriving more than others: AI chips, quantum computing, and autonomous systems. Figures from Dealroom.co’s report on European deeptech show the surge of venture capital (VC) funding, particularly in defense AI. 

© Dealroom.co

A significant chunk of the over €650 million raised last year went to the German Helsing, which received €450 million in its Series C funding round. The firm, valued at €5 billion, develops software that processes data from sensors and weapon systems to offer real-time battlefield intelligence. Its technology has also been deployed to boost Ukrainian drones' AI capabilities. Helsing is Europe's most funded defense startup. 

The Portuguese Tekever raised €75 million for its unmanned surveillance drones, making it the second-largest defense investment of 2024 in Europe. Stark Industries made it onto the podium with its €14 million for weaponized drones. 

Readiness 2030 technology focus

The ReArm Europe plan–dubbed also Readiness 2030 after the complaints of Italy and Spain's prime ministers, Meloni and Sánchez–stresses the importance of investing in defense tech. The white paper on defense presented last week underscores the role of quantum computing and AI in reshaping warfare. 

The plan identifies three investing pillars for spending the announced €800 billion—the third hints at more defense tech startup financing. The strategy also relies on lending support from the European Investment Bank Group to unlock private funding to finance startups. 

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More money to back defense tech

In late January, the European Commission also allocated slightly over €1 billion for collaborative defense research and development (R&D) projects. Under the European Defense Fund (EDF), the financing aimed to bolster military capabilities while supporting innovation and improving EU industrial competitiveness. 

In assessing private capital's role, an analysis by consulting company McKinsey zoomed into the development needed to accelerate the European defense tech funding ecosystem. Drawing a comparison with the US one, Europe is five years behind in terms of maturity, with fewer capital deployed, the number of funding rounds, and companies’ age. As investments are soaring, European capital is missing in later-stage rounds, similar to what happens in the overall funding scenario. Moreover, US investors are the most prominent players, stepping in for 63% of the larger funding rounds of European defense tech companies. 

As the ecosystem thrives and public support steps up, opportunities lie for innovative companies operating in defense, security, and dual-use tech. These startups, specifically those that might not per se be developing military tech, may spark the most interest from investors. 

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